Dollar General (DG) Q4 earnings lack estimates, Y / Y increase

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Societe Generale Dollar DG presented the results for the fourth quarter of fiscal 2020, in which the upper and lower results improved compared to the period of the previous year. The discount retailer also posted strong same-store sales performance. While net sales exceeded Zacks’ consensus estimate, profits were weaker than expected.

Notably, the Goodlettsville, Tennessee-based company released a forecast for fiscal 2021 and reported lower same-store sales. The company also guided its earnings below analyst expectations. To be sure, the company has benefited from the surge in demand due to coronaviruses in fiscal 2020. However, analysts expect pandemic-induced demand to moderate as the vaccination campaign slows down. speeds up and consumers return to the old normal.

Management advised that from February 27 to March 16, 2021, same store sales decreased by approximately 16%.

We note that Dollar General shares fell during pre-market hours on March 18th. This Zacks Rank # 3 (Hold) stock has fallen 11% in the past three months compared to industrydown 2.1%.

Let’s dig deeper

Quarterly earnings rose to $ 2.62 per share, which missed the Zacks consensus estimate of $ 2.71, but rose 24.8% from the $ 2.10 reported in the year former. The increase in net income year over year can be attributed to higher net sales and margins.

Net sales of $ 8,414.5 million were up 17.6% year-over-year and topped Zacks’ consensus estimate of $ 8,276 million for the 11th consecutive quarter. The contribution of new outlets and same-store sales growth had a favorable impact on sales, partially offset by the impact of store closures.

Dollar General same-store sales increased 12.7% year-over-year, primarily due to an increase in average transaction size, partially offset by lower customer traffic. In particular, the categories of consumables, seasonal, home and clothing products had a favorable impact on the metric. Among these categories, home products recorded the largest increase. The pandemic-induced consumer behavior has significantly benefited both net sales and same-store sales.

Management also updated that from January 30 to February 26, 2021, same-store sales increased by approximately 5.7%.

Sales in the Consumables category increased 15.5% to $ 6,321.6 million, while sales in the Seasonal category increased 19.7% to $ 1,097.5 million. Sales of home products climbed 32.2% to $ 608.5 million, while clothing category sales rose 25.3% to $ 386.9 million.

Dollar General Corporation Price, Consensus and BPA Surprise

Dollar General Corporation price-consensus-eps-surprise-chart | Dollar General Corporation quote

Gross profit jumped 20.4% to $ 2,736.7 million in the quarter under review. Notably, gross margin increased by 77 basis points (bps) to 32.5% due to lower markdowns and reduced inventory reduction, coupled with higher initial markups on inventory purchases and to a significant proportion of sales of non-consumable product categories. These were partly offset by higher distribution and transport costs.

Meanwhile, selling, general and administrative expenses, as a net revenue rate, deleveraged 48 basis points to 22.2% in the quarter, thanks to additional spending related to the COVID pandemic -19. In addition, operating profit jumped 21% to $ 872.2 million, while operating margin rose to 10.4% from 10.1% a year earlier.

Store update

During fiscal year 2020, the company opened 1,000 new points of sale, renovated 1,670 stores and relocated 110 stores. For fiscal year 2021, management plans to complete 2,900 real estate projects. This includes 1,050 new store openings, 1,750 renovations and 100 relocations.

Other financial details

Dollar General ended the quarter with cash and cash equivalents of $ 1,376.6 million, long-term obligations of $ 4,131 million and equity of $ 6,661.2 million. As of January 29, 2021, total merchandise inventories, at cost, were $ 5,247.5 million, up 6.3% per store from the same period last year.

Management has committed capital expenditures of $ 1 billion in fiscal 2020. For fiscal 2021, it anticipates capital expenditures in the range of $ 1.05 billion to $ 1.15 billion.

In fiscal 2020, Dollar General repurchased shares for $ 2.5 billion. The company had $ 679 million remaining under authorization at the end of fiscal 2020. The company’s board of directors notably increased the authorization under the share buyback program by $ 2 billion on the 17th. March 2021. The company expects to make share repurchases of approximately $ 1.8 billion. during fiscal 2021. Additionally, the company increased its quarterly dividend by 16.7% to 42 cents per share.

Outlook

Management warned that significant uncertainty remains related to the severity and duration of the current pandemic, and its impact on the economy, consumer behavior and business. Therefore, it is difficult to predict precise results. In addition, the company said, “In addition, these results could be affected by several variables including, but not limited to, economic stimulus payments, economic recovery, employment levels, vaccine status. COVID-19 and the Continuing Impact of the Covid19 Pandemic. “

Dollar General expects fiscal 2021 net sales to be stable at a decline of 2% and same-store sales to decline in the range of 4-6%. The company expects profits between $ 8.80 and $ 9.50 per share. Zacks’ consensus estimate for fiscal 2021 is currently set at $ 10.03.

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